Standing Committee E

[Sir John Butterfill in the Chair]

Consumer Credit Bill

Gerry Sutcliffe: I beg to move,
 That— 
 (1) during proceedings on the Consumer Credit Bill, in addition to its first meeting at 9.25 a.m. on Tuesday 25th January, the Standing Committee shall meet at — 
2.30 p.m. on Tuesday 25th January; and 
9.25 a.m. and 2.30 p.m. on Thursday 27th January, Tuesday 1st February and Thursday 3rd February; 
 (2) the Bill be considered in the following order, namely, Clauses 1 to 55, Schedule 1, Clauses 56 to 59, Schedule 2, Clauses 60 to 68, Schedule 3, Clause 69, Schedule 4, Clause 70, new Clauses, new Schedules and remaining proceedings on the Bill; 
 (3) proceedings on the Bill shall (so far as not previously concluded) be brought to a conclusion at 6.55 p.m. on Thursday 3rd February. 
Welcome to the Committee, Sir John. It has been my pleasure to sit with you on Finance Bills and on a variety of other Committees over the years, and I am delighted that you will be chairing our proceedings, together with your co-chairman Mr. Benton.The Bill has been well consulted on. It is a long time since the last Consumer Credit Bill was passed in 1974. When the White Paper was published, there was a great deal of consultation with industry and with consumer groups on the regulations that flowed from it, so the Committee will have a wealth of information at its disposal to enable it to deal adequately with the Bill. I am delighted that the hon. Member for Tewkesbury (Mr. Robertson) is in his place, and I look forward to his words of wisdom. Alongside him sit his Whip, and the hon. Member for Richmond Park (Dr. Tonge), who is in place of the hon. Member for Gordon (Mr. Bruce) this morning, who is away on parliamentary business. 
The Committee has a wealth of talent, Sir John, given its experience on many issues, including debt. It would take too long for me to go through the expertise and knowledge of each Member—and, as a former Whip, I have other information as well. I look forward to their involvement. 
The Bill is important, as it will affect the lives of all our constituents. Unfortunately, there are many sad stories of people getting into a great deal of difficulty with debt, and that is one of the reasons why the Bill is needed. I know that we will give it due consideration.

Laurence Robertson: I join the Minister in welcoming you to the Committee, Sir John. I do not have his breadth of experience of serving under you on Committees, but I am sure that it will be a very pleasurable and enlightening experience.
The official Opposition are, of course, opposed to programme motions, and we voted against the programming of this Committee because we feel that these things should be more open-ended. Important issues are before us, and we cannot tell how long it will take to discuss them. However, we are where we are, and I have no intention of prolonging this part of the proceedings.

Jenny Tonge: I apologise, first of all, for the absence of my hon. Friend, the Member for Gordon.
This is a new and interesting area for me: if you were coming to the Committee Stage of a Bill to regulate gynaecologists, Sir John, you would understand how I feel. It will be a very interesting experience. I have—this can be checked with our Whips—no personal experience of this subject, apart, I am proud to say, from my mortgage. However, I am not sure that my constituents are in the same position, as many, many people come to my surgery who have got into huge difficulties. For that reason my party and I welcome the Bill. 
Question put and agreed to.

Gerry Sutcliffe: On a point of order, Sir John. I should like to deal with an issue that arose on Second Reading, on which some hon. Members would like clarification. Several Members asked whether the Bill could allow for lay representation in Scotland for time order applications. We discussed that with the Scottish Executive and the Scotland Office, and there is considerable support for permitting lay representation in time order applications in Scotland. As I said on Second Reading, the Government would like all people in the United Kingdom to be able to exercise their rights in the same way. Therefore, Sir John, we will return to that issue on Report.

John Butterfill: Thank you.
I remind the Committee that there are a money resolution and a Ways and Means resolution in connection with the Bill. Copies of the resolutions are available in the Room. 
Hon. Members should give proper notice of any amendments, as it will not be my intention or that of my co-Chairman to accept starred amendments. I also remind hon. Members that mobile phones and pagers should either be turned off or turned to silent.

Clause 1 - Definition of ''Individual''

Question proposed, That the clause stand part of the Bill.

Gerry Sutcliffe: Clause 1 amends the definition of ''individual'' in section 189(1) of the Consumer Credit Act 1974. The definition is important because an agreement is only a consumer credit agreement or consumer hire agreement as defined by the 1974 Act. The agreement is therefore capable of being regulated by the Act if the debtor or hirer under the agreement is an ''individual'' within the meaning of the Act.
As it stands, the definition in section 189(1) gives an extended meaning to the word ''individual'' that includes partnerships or other unincorporated bodies of persons of any size, as long as the members of the partnership or unincorporated body are not exclusively bodies corporate. Bodies corporate are not included in the definition of an ''individual''; they therefore receive no protection as debtors or hirers under the Act. Medium-sized and large partnerships, as hon. Members will know, are often highly sophisticated businesses, such as international firms of lawyers and accountants. They can look after themselves and do not require the protections afforded to ordinary consumers. That being said, the Government recognise the need to foster and protect small businesses to encourage enterprise in Britain. 
In order that they might grow, many small businesses require access to ready credit, such as credit cards or hire purchase. Many people who are starting out in business operate with little distinction between their private and business lives. They also have the same, or similar, low levels of credit expertise and face similar borrowing risks to ordinary consumers. The clause will amend the definition of ''individual'' to include partnerships of three or fewer people, as long as not all of them are bodies corporate. That means that any small partnership including natural persons will continue to enjoy protection under the 1974 Act. 
Hon. Members should note that sole traders are, and will continue to be, ''individuals'' within the meaning of the Act. They, too, will continue to be provided with the same protections they currently enjoy under the 1974 Act. The definition will continue to include unincorporated associations, provided that not all their members are bodies corporate, because the members of many of those bodies, which often perform valuable charitable and community work, are ordinary people. They, too, should continue to enjoy their current protection under the Act. 
Question put and agreed to. 
Clause 1 ordered to stand part of the Bill.

Clause 2 - Removal of financial Limits etc.

Question proposed, That the clause stand part of the Bill.

Gerry Sutcliffe: Clause 2 removes the current financial limits in the 1974 Act. The financial limit defines those consumer credit agreements and consumer hire agreements that are protected under the Act. Only agreements that provide credit or that require hire payment of up to the £25,000 limit are protected. The limit was initially £5,000, which was a considerable sum in 1974. It was raised to £15,000 in 1985, and the current £25,000 limit was introduced in 1998. To many consumers, £25,000 is no longer a substantial amount of borrowing; the average debt consolidation loan now exceeds £25,000. Therefore, subsections (1) and (2) will remove the financial limit that applies to consumer credit agreements and consumer hire agreements. In future, all agreements, for whatever amount, will be subject to regulation under the Act, unless specifically exempted. Exemptions already exist under section 16 of the 1974 Act. The Bill proposes additional exemptions in clause 4 for business borrowing and business hire agreements that exceed £25,000, and in clause 3 for high net worth borrowers and hirers.
The effect of subsection 1(a) is to remove the definition of a ''personal credit agreement'' from the 1974 Act. That term is used in sections 8(1) and 10(1) of the Act to refer to agreements providing credit to an individual for any amount. The term ''consumer credit agreement'' is used to identify credit agreements in which credit does not exceed £25,000. If the financial limit is abolished, those distinctions become redundant. 
Subsection (3) extends the provisions of the Act that regulate the form and content of credit advertisements to regulated credit agreements, regardless of the sum involved and regardless of whether the creditor or owner requires security in respect of that agreement. 
Question put and agreed to. 
Clause 2 ordered to stand part of the Bill.

Clause 3 - Exemption relating to high net worth debtors and hirers

Laurence Robertson: I beg to move amendment No. 9, in clause 3, page 2, line 27, after 'description', insert
', who shall not be connected through pecuniary interest to the lender'.

John Butterfill: With this it will be convenient to discuss amendment No. 10, in clause 3, page 2, line 30, at end insert—
'(d) must be signed by the debtor in the presence of an independent witness, who shall not be connected through pecuniary interest to the lender and shall not be the person who has made the statement referred to in subsection (1)(b).'.

Laurence Robertson: This is the first clause that might be considered to be in the meaty bit of the Bill. It deals with an exemption that relates to high net worth debtors and hirers, which means that certain people who are declared to be of high net worth do not come within the scope of the Bill. In a sense, it is difficult to understand why the clause is in the Bill, but there is a precedent in the insurance industry. People who go to,  for example, Legal and General or Prudential to make a purchase or to be sold a pension plan are allowed to state that that is all they want. They do not have to accept the wider advice that those companies are deemed to have to provide.
This provision is slightly different, in that people in the insurance industry who take out a pension or a savings plan are not taking out an obligation as such: they are purchasing something of lasting benefit. If people decide, after six months or six years, that they do not want a pension, they can simply cease payments; that is not the case with a credit agreement. People who take out credit may get themselves into a difficult situation that is not as easy to get out of. I am not sure that that analogy is a direct one. 
I am slightly concerned about people being declared of ''high net value'' and therefore not coming under the terms of the Bill. Amendment No. 9 seeks to clarify the clause. The Bill says that someone other than the debtor has to declare himself or herself as being of high net worth. The amendment attempts to make it clear who can make that declaration. I say that the person making that declaration 
''shall not be connected through pecuniary interest to the lender''. 
It is clear what I am trying to get at: a lender should not be able to provide a person to declare that the borrower is of high net worth when they have a direct pecuniary interest in doing so, because that would let the lender escape the terms of the Bill. That is a rather convoluted way of describing it, but it is probably clear what I mean. 
Amendment No. 10 requires that such a declaration 
''must be signed by the debtor in the presence of an independent witness, who shall not be connected through pecuniary interest to the lender and shall not be the person who has made'' 
the original statement. It is a little bit complicated, but I hope that the Committee understands what I am driving at. I do not seek to strike out the ability of somebody to be declared as being of high net worth and therefore escape the clutches of the Bill. I am simply trying to make it a little more certain that the lender does not manipulate the situation.

Gerry Sutcliffe: I welcome the spirit in which the hon. Member for Tewkesbury has moved amendment No. 9 and spoken to amendment No. 10, though there may be drafting difficulties to overcome before he hits the target he is aiming at. It is important to explain what we are trying to achieve with the clause, and the amendments will help us to do that.
Amendment No. 9 seeks to prevent statements of high net worth from being made by any person who has a connection by way of pecuniary interest to the lender. The amendment prevents the statement from being given by anyone who is employed by the borrower or who otherwise works for him or her for financial reward. It prevents the statement from being given, for example, by a lawyer or an accountant retained as an adviser by the borrower. 
I cannot imagine that that is what the hon. Gentleman intends. Such professional advisers operate within strict rules of conduct.

Laurence Robertson: Amendment No. 9 prevents someone who is connected to the lender from giving a statement. In other words, the lender cannot remove someone from the clutches of the Bill.

Gerry Sutcliffe: If the hon. Gentleman will bear with me, matters will become clear to him. If they do not, I am sure that he will pursue them. I understand the intention behind the amendment, but we are dealing with a particular group of people and it is important that we understand how they operate under the circumstances in which they find themselves, given the industry's fears that business might be lost if we over-regulate.
The Secretary of State will have power by order to set out exactly who may make a statement of high net worth and what such a statement must contain. It is also our intention that the order will carefully prescribe the classes of person authorised to make a valid statement. They should be professionals whose status has been independently verified, such as solicitors, accountants and independent advisers who have been recognised by the Financial Services Authority. 
I may be getting ahead a bit, but once the Bill has passed into law I plan to consult before laying a statutory instrument setting out exactly who will be permitted to give a statement. That may cover both amendments. 
In amendment No. 10, the hon. Gentleman seeks to strengthen safeguards when someone is claiming high net worth exemption in clause 3. Again, the drafting may cause a problem. Subsection (1) would permit the Secretary of State, by order, to provide that a debtor or hirer who is a natural person may agree to forgo his or her protection and remedies under the Consumer Credit Act 1974 so long as two conditions are satisfied. The first is that the debtor should sign a declaration in the credit agreement making it clear that he or she agrees to forgo those protections. The second is that the lender should be in receipt of a statement of high net worth made in respect of the borrower. Subsection (3) makes it clear that such a statement may be made not by the borrower, but by a specified person. Subsection (4) grants to the Secretary of State the power, by order, to define who will constitute a specified person. It will also set out other rules about the form, content and signing of such statements. 
At this stage we propose that statements of high net worth will be made by professionals whose status has been independently verified, such as solicitors, accountants and independent advisers who have been recognised by the Financial Services Authority. The statutory instrument will take care of the issues that the hon. Member for Tewkesbury has raised. 
Informally, this is known as a helicopter clause, as those who wish to borrow large amounts of money can, at very short notice, with professsional advice, make a statement of high net worth. I understand the hon. Gentleman's point, but there are sufficient safeguards in the clause.

Laurence Robertson: One of the constant concerns expressed to me about the Bill, which I supported on Second Reading, so I do not want to be too damning, was that certain of its provisions are vague and that we will have to wait for further orders to come forward before we know the details. Does the Minister have any idea about what might be deemed ''high worth''? It may be a relative term, but it would help the Committee if he could say something about its meaning.

Gerry Sutcliffe: As the hon. Gentleman would expect, I do not accept entirely the challenge that the Bill is wholly vague. The Bill is trying to engender the concept of responsible lending and borrowing to ensure that the whole process is transparent on both sides. It is important that we listen to the concerns of the industry. It was the industry that raised the issue of high net worth individuals and their ability to go elsewhere if this provision is not available in the United Kingdom.
In the short term, the answer to the hon. Gentleman's question about high worth is that we envisage it as encompassing a net annual income of £100,000 and net assets of £250,000, excluding non-liquid assets, such as the share in the principal home and pension funds. These figures reflect those used by the Financial Services Authority to define a sophisticated investor. I hope that helps the hon. Gentleman. I ask him to withdraw his amendment, and if he does not, I ask the Committee to vote against it.

Laurence Robertson: I thank the Minister for his detailed and very helpful response. I am still a bit concerned that somebody connected to the lender could make the declaration. To return to the analogy originally used, it would not be acceptable for a financial services company to dispense with the requirement to give best advice. That must be done by somebody other than the company, and, in that case, it would be the person taking out the pension plan, if that was what they were taking out. I am not entirely satisfied, but the Minister has gone into considerable detail in answering my question. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn. 
Clause 3 ordered to stand part of the Bill.

Clause 4 - Exemption relating to businesses

Question proposed, That the clause stand part of the Bill.

John Butterfill: With this it will be convenient to discuss the following amendments: No. 12, in clause 5, page 3, line 37, leave out 'or 16B'.
No. 15, in clause 5, page 4, line 25, leave out 'or 16B'. 
This is a slightly unusual procedure.

Gerry Sutcliffe: Like you, Sir John, I am slightly confused about the way in which we are dealing with this group of amendments.

Laurence Robertson: It may help if I say that these amendments are consequential on deleting clause 4.

Gerry Sutcliffe: I thank the hon. Gentleman for trying to be helpful. He has given me a quick breathing space to check what was appropriate to the debate.
The amendments would extend regulation of the Consumer Credit Act to consider all consumer credit agreements, regardless of the value or purpose of the loan. Although it is true that the Bill will abolish the financial limit for regulation under the Act, it does not do so across the board. It seeks to limit the protection afforded to loans taken out for business purposes by redefining a consumer credit agreement as an agreement where a debtor is an individual, an unincorporated association or a partnership of three or fewer partners. All loans to other borrowers, such as large partnerships and companies, are incapable of being regulated under the Act. This constitutes a narrowing of the existing definition under which all partnerships, regardless of their size, are able to conclude regulated agreements. 
Clause 4 also distinguishes between the purposes for which these groups take out loans. The Bill would regulate any other loan—for whatever purpose—up to, and including a value of £25,000, the current limit in the Act. However, loans to those groups of more than £25,000 will not be regulated if they are made wholly or predominately for business purposes. Whether a loan of more than £25,000 is made wholly or predominately for business purposes will be a matter of fact in each case. However, where there is some doubt as to the purpose of the loan—for example, if it is made to finance the purchase of goods that have both a business and a private use—the borrower may make a declaration that the loan is wholly or predominately for business purposes. When such a declaration is given, the lender may rely upon it to draw up an unregulated agreement unless he knows, or has reasonable cause to suspect, that it is untrue. 
Subsection (4) gives the Secretary of State the power to prescribe by order the form, content and signing arrangements of such declarations. The Bill aims to maximise protections granted to consumer borrowing by abolishing the existing financial limits in the Consumer Credit Act 1974. It also seeks to make it clear that lending for business purposes above £25,000 will ordinarily be excluded from regulation, and it excludes all but the smallest partnerships from the category of borrowers who can take out regulated consumer credit agreements. 
The effect of the amendment would be to blur the clear policy line, and to bring within regulations a large number of business loans that are properly outside the ambit of the Act. It is important to remember that no protection is being removed from sole traders, small partnerships and unincorporated associations. The existing financial limits restrict regulations to £25,000 across the board, regardless of the purpose of the loan, and that protection will continue for those borrowers.  Above that level, we expect borrowers to take advice commensurate with business risk, and they should not be treated as ordinary consumers. 
The general position under the Bill is that business lending should be excluded from regulation. Limited exemptions apply to borrowing by sole traders, small partnerships and unincorporated associations, and all borrowing by them up to £25,000 is to be regulated. Borrowing over £25,000 can be regulated, but only if it is not wholly or predominantly for business purposes. It is important to remember that no protection is being removed from those borrowers. The existing financial limits restrict regulation to £25,000 across the board, regardless of the purpose of the loan. 
There is no requirement for a declaration where it is clear because of the identity of the borrower, the nature of the finance or the circumstances of the agreement that the loan is wholly or predominantly for business purposes. Lenders may lend on regulated business terms without the comfort of a declaration if they are content to do so. In many cases, the lender and borrower will have a long-standing relationship, and the intention of each will be clear to the other. The declaration mechanism has been provided for the avoidance of doubt. While the intention of the parties is clear, some element of the agreement might subsequently call that into question. We decided that a declaration for a business purpose would create a presumption that the borrowing is for a business purpose, but if the creditor knows, or has reasonable cause to suspect, that the business purpose declaration is false or wrong, the agreement will be treated as a regulated agreement. We believe that those requirements mean that consumers will be properly protected against abuse of the provisions. 
Clause 4 deals with exemptions from regulation of business lending under the 1974 Act, and to that effect, it inserts new section 16B into the Act. Hon. Members should note that when I say ''lending'' or ''credit'' when talking about this clause, I also mean ''hire''. Clause 2 will have the effect of removing the financial limits below which credit is not regulated under the Act. That means that, in future, credit of any amount made available to consumers will be regulated, except where specifically exempted under the Act. The new subsection (1) provides one such exemption. It states that the Act does not regulate a consumer credit or consumer hire agreement worth more than £25,000 where that agreement is entered into wholly or predominantly for a business purpose. Agreements for business purposes for £25,000 or less will continue to be regulated under the Act, as I have explained. The effect of clause 1 is that, in future, that provision will apply only where the borrower is a sole trader, an unincorporated association or a partnership of three or fewer partners. 
''Business purposes'' is not defined; we believe that to do so would be unhelpful. That would either exclude  from regulation some consumer transactions or mean that many transactions that are for business purposes would continue to be regulated. The best people to determine the purpose of the credit are the parties to the agreement. The new subsection (2) provides that a person can make a declaration as part of the agreement that the credit is either wholly or predominantly for a business purpose. Such a declaration will give rise to a presumption that the borrowing is for a business purpose. Under the new subsection (3) the presumption will not apply if the lender or a person acting on his behalf knows or reasonably suspects that the credit is not wholly or predominantly for a business purpose. 
The new subsection (6) provides that where an agreement involves more than one lender, such knowledge on the part of one of them will bind them all. The Secretary of State may, under the new subsection (4), make regulation setting out the form and content of the declaration as to a business purpose. New subsection (5) specifies who may make declarations about business purposes on behalf of partnerships and unincorporated associations. New subsection (7) states that business borrowers are not prevented from applying to reopen the agreement on the basis that it flows from an unfair relationship.

Laurence Robertson: I thank the Minister for explaining why clause 2 is valuable. I admit that I am slightly confused, because it seems that business agreements that are worth less than £25,000 will continue to be regulated, whereas those that are worth more than that will not. I do not follow that logic.
Having considered the clause long and hard, my main reason for wanting to strike it out is that, as I understand it, an incorporated company can borrow more than £25,000 and not be covered. In many cases there is little difference between an incorporated company and an unincorporated association, a partnership or an individual trader. When I was in business a few years ago, anyone could set up a company for around £100, often getting the protection that forming a company would give them, such as limited liability. However, in many other cases, the director of that company would have had to give a personal guarantee for many of the business transactions that were carried out. The director might have had to borrow money to keep the business going, would probably have had to give a director's guarantee for that loan, and quite often would have had to put his house up as surety. 
That situation is not very different from that of the man next door who might carry on in business without the protection of that limited company. My point is that the protection of a limited company often does not exist. The sensible clauses of the Bill should therefore protect someone in that situation. For example, if a person were to take out credit with an unscrupulous lender or someone who fires off letters to  him every time he misses a payment and charges him £30 or £40 for the privilege, his business would quickly get into serious difficulties. If that person has been given a director's guarantee, he could find himself in exactly the same situation as an individual who has borrowed money for a world cruise. I do not see a huge difference. 
Will the Minister explain why those two situations are different? The fact that the borrowing is for business purposes does not change the matter. We are still talking about individuals, and if the Bill is worth passing, which in general terms it is, everyone should be protected by it. Otherwise, the suggestion is that the Bill is flawed. Before I am happy to accept the clause, the Minister will need to explain it in more detail and answer some of my points.

Gerry Sutcliffe: Although I understand the concerns that the hon. Member for Tewkesbury raised, the Committee will forgive me for saying that my explanation for the way that things have developed may have been unclear. The aim is to separate those companies that are defined as small businesses that need to be protected or that need access to credit. All sectors were fully consulted on this Bill, and there was much concern about the £25,000 limit, which exists under the Consumer Credit Act 1974. We retained it so as not to remove any existing protection from sole traders, small partnerships or incorporated associations. However, we do not believe it appropriate to extend that protection in respect of business lending, which is covered by other Acts and processes. No protection is being removed; the existing financial limit restricts regulations to £25,000 under the Act.
The hon. Gentleman raised the issue of the difference between incorporated and unincorporated companies. That distinction was drawn in the 1974 Act, not in this Bill. Incorporated companies have never been protected under the Act, and to include them now would mean a fundamental change in what the Consumer Credit Act concerns. Incorporated companies are not currently regulated by the Act; we shall not change that position, and no protections have been lost. In fact, the protection for those companies will be there in the new definition. 
I hope that the hon. Gentleman will accept that explanation as being in the spirit of what the Government intend and that he will support the clause.

Laurence Robertson: I thank the Minister for attempting to explain, but I still do not see clearly. Business lending is either protected or it is not, but that is not the case here.

Gerry Sutcliffe: In clause 1, the definition of individual was changed to include sole traders and the ''under three'' provision, and that is protection.

Laurence Robertson: I am grateful to the Minister for his further attempt, but I am not sure of the philosophy behind the provision. Business lending should either  be protected or not, but that is not the case here. It seems that a limited company is not protected, but a company which is not limited is protected. Have I got that right? Surely business lending should be protected or it should not? It concerns me that I, as a sole trader, can be protected, but if I were to form a limited company with £100, putting up my house and risking everything on that business, I suddenly would not be protected. I cannot see the logical leap, but the issue probably has been explored far enough.

Gerry Sutcliffe: I hesitate to intervene because I might make matters worse, but I shall try not to. I understand the hon. Gentleman's dilemma, but he does not exactly appreciate the clarity with which I think I put forward the Government's case. There is, perhaps, an issue here to which he or I may wish to return in further discussions. The best way forward now would be for him to be kind enough to withdraw his amendments, with my assurance that the definition will be examined in more detail later in Committee or at Report. However, I am clear that business lending is defined in terms of the purpose, and not the form, of the borrower. Limited companies have a particular form of constitution; their liability is limited, and they have benefits that sole traders do not have, for example, access to wider forms of finance. In the spirit of what we are trying to achieve, I ask the hon. Gentleman to withdraw. I give my assurance that the matter will be further discussed, so that he will be much clearer about what the Government are trying to achieve.
The Chairman: It is not necessary for the hon. Member for Tewkesbury to withdraw his amendments because, although they have been debated, they have not been moved and could not be moved until we came to clause 5. Since they are consequential upon clause 4 standing part or not, there is no need for the hon. Member to do so.

Laurence Robertson: Thank you, Sir John. I should just remind the Committee that that was meant to be an intervention from the Minister rather than a speech, but it is not necessary for me to move the amendments; we have not yet reached that position.
I am not persuaded that we should not consider what I am saying simply because it is not in the 1974 Act and that it would change the 1974 Act. The Bill is about changing the 1974 Act, so I do not think that that is a valid reason; otherwise we would never change anything in this place. I do not accept that there is a huge leap from becoming a sole trader to becoming a single director or one of two or three directors of a limited company. I am not persuaded that we should go down this route; however, the Minister has said that he will look at it again. I do not think that it is just about definition. It is a little bit more than that; it is about practicalities. However, the Minister said that he would have look at it again, and my experience of working with the Minister tells me that he will look at it very seriously indeed. 
Question put and agreed to. 
Clause 4 ordered to stand part of the Bill.

Clause 5 - Consequential amendments relating to ss. 1 to 4

Amendment made: No. 1, in clause 5, page 4, line 18, leave out 'that section' and insert 
'section 185 of that Act (agreement with more than one debtor or hirer).'—[Mr. Sutcliffe.] 
Clause 5, as amended, ordered to stand part of the Bill.

Clause 6 - Statements to be provided in relation tofixed-sum credit agreements

Jenny Tonge: I beg to move amendment No. 29, in clause 6, page 4, line 32, after 'made', insert
'or the mid-point of the loan, whichever is sooner'. 
We accept that lack of information for borrowers about their credit agreement contributes to the scale of debt. People who have fallen into arrears are especially affected. Clause 6 calls for annual statements, and that is very welcome indeed. Some people get annual statements now; some do not. We are concerned about fixed sum loans that last less than a year. They often carry very high interest rates and are often rolled over. People often get into huge difficulties with such short-term loans. The amendment asks the Minister to consider a mid-term statement as well as an annual statement for those on short-term loans so that debtors are quite clear on how they stand half way through the term. I understand that the Citizens Advice Bureau supports the amendment.

Gerry Sutcliffe: I thank the hon. Member for Richmond Park for the way in which she moved the amendment. Unfortunately, I must disappoint her and say that the Government will ask the Committee to resist it.
The amendment would require an annual statement to be issued for agreements that continue for more than one year. It is not confined to those with a contractual term of one year or more. Therefore, if an agreement runs for more than one year, despite originally being for a lesser period, a statement will be required. The Government have considered at great length the need to provide consumers with relevant and clear information for the reasons that the hon. Lady mentioned. 
I believe that we have found a balance between her concerns and providing the required information. Agreements of less than one year are generally for small amounts of money and are unsecured. Consumers with such agreements often use credit products that are more transparent in the handling of information, such as home credit account books. However, we recognise, as the hon. Lady says, that some are not and that consumers are entitled to receive information about arrears and default sums. 
The requirements will bind lenders in all circumstances. In addition, the debtor is entitled, at any time, to request a statement of his account from the creditor under section 77 of the 1974 Act. The  proposal from the hon. Member for Richmond Park also gives rise to practical difficulties for lenders: an agreement with a one-month term would require a statement to be provided after two weeks; a 40-week term would require a statement after 20 weeks or about four months and three weeks. The permutations are endless and can only serve to decrease the flexibility of loan products for consumers who seek short-term credit and increase their price, and the Committee does not want that.

John Battle: I have some sympathy with the intention of the amendment. Will the Minister give me some guidance? I get the impression that people find one lender but then other lenders come along, and their debts are compounded. Lenders seem to be unaware that some people already have loans from other lenders. The problem lies with the lenders; it is down to them rather than the lack of information on a borrower's statement. The affordability test may meet some of hon. Lady's intentions, because the real pressure should be on the lenders not to lend indiscriminately. If we could get the message through to the whole sector, people would not be in double the debt if lenders made each other aware of whom they are lending the money to.

Gerry Sutcliffe: I fully agree with the direction in which my right hon. Friend the Member for Leeds, West (Mr. Battle) is heading. The whole purpose of the Bill is about responsible lending and borrowing. We are talking about a mature credit market with regard to the type of credit available to consumers. For many years, my hon. Friend has been concerned about people at the lower end of the market, who can be exploited. It is our intention to ensure that people are not exploited; the provisions are about balance. We do not want to remove products from the marketplace that people who want short-term credit at the lower end of the market should have.

Jenny Tonge: Does the Minister agree that it is not an onerous request to expect the lending company to produce more frequent statements? Banks will provide statements every week if customers request them. I cannot understand why it should be so difficult to provide a mid-term statement.

Gerry Sutcliffe: With respect to the hon. Lady, the provision is about the type of loan. As I said, in some cases there is a book that records the details of loans. We fully consulted with all sectors of the marketplace, including lenders and consumer groups. We could end up with the situation described by my hon. Friend the Member for Leeds, West whereby a tremendous amount of inappropriate information is given to the consumer, or information that the consumer does not fully understand and appreciate. We do not want to go down that route.
There are major issues about data sharing, which we will address later. That may offset some of the problems that the hon. Lady is pointing up. We have, I think, struck the right balance. Providing a mid-term statement would not really help a great deal. Making people fully aware of the products that they are using  and where to go if they have difficulties will help matters. The Government have the balance right, and more protections will be in place, as the hon. Lady will discover as we go through the Bill.

Jenny Tonge: The Minister says that people should be fully aware of the products that they are accessing, but that is the problem. He bases his comments on the assumption that people should be, and are, fully aware of what is on offer, but they are not. People are vulnerable. If someone is poor or lonely or does not have many friends to advise them, they will not know what products are on the market, and they will not understand what they are doing. That is the problem, and that is why we seek more frequent statements.

Gerry Sutcliffe: We are not disagreeing over the objectives that we are trying to achieve. I do not want to stray from the Bill, Sir John, but, with your great knowledge and background in this area, you are aware that the Select Committee on Treasury is doing a great deal of work on financial exclusion. That has to be looked at as a whole. Although we are examining particular elements of the Bill, we shall consider all aspects of consumer education on the subject of handling money, such as debt or money advice. That is the direction we are going in.
The hon. Lady may not recognise this as a major point as regards her amendment, but the balance of relationships has taken time to develop. There is a strong home credit market of small businesses that lend money, and they regard having to provide more information as an onerous task. I accept her point that consumers may not be fully informed but section 77 of the 1974 Act provides the right to request a statement, regardless of the length of the agreement. Protections are in place. Using her logic, this amendment will not improve matters if people do not understand the situation. In the spirit of what we are trying to achieve, I hope that the hon. Lady will withdraw her amendment.

Jenny Tonge: I thank the Minister for his patient explanation. As I seek to gather reinforcements, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.

Jenny Tonge: I beg to move amendment No. 30, in clause 6, page 4, line 36, at end insert—
'(c) shall clearly state within the agreement the amount borrowed and the total interest payable on the loan; and 
(d) shall advise the debtor borrowing on credit cards that for long term balances other credit products such as loans or overdrafts may be available; and 
(e) shall be obliged to give free and impartial advice to the debtor as to alternative products that may reduce the cost of borrowing.'.

John Butterfill: With this it will be convenient to discuss amendment No. 16, in clause 6, page 4, line 38, at end insert
'but shall include— 
(a) the amount paid by the debtor to the lender to date; 
(b) the amount remaining to be paid by the debtor to the lender; and
(c) the remaining term of the agreement.'.

Jenny Tonge: The amendments follow on from the previous discussion. There is huge concern that people do not know what they are doing, or are letting themselves in for, when they take out loans. They are subject to huge pressures from many companies. They must lose count of the amount of junk mail they receive from financial companies offering loans, credit cards or other enticements that can lead to debt.
One of the bees in my bonnet is the advertising industry; a great deal of blame can be laid at its door. The intensity with which the industry advertises to get people, particularly those who are lonely or elderly, into debt is horrifying. When my mother was old she did not get much post. Like many elderly people whose friends had died, she opened everything that came through her letterbox. Most people tear up much of their junk mail; my mother used to read even the pizza offers and keep them to discuss them with me when I visited. There are many people like that in my constituency and throughout the country. They see enticing offers for what looks like cheap money—a lump sum for which they pay a small amount each month—and they are seduced. We must protect those people. From the beginning, debtors must be clear about the amount borrowed and the total interest payable.

James Plaskitt: I take the point about vulnerable people receiving this information. With regard to paragraph (c) of the amendment, can the hon. Lady explain how it would be possible for the creditor to include in the statement the total interest payable? Surely that would depend on the repayment profile chosen by the person carrying the debt?

Jenny Tonge: If the debtor agrees on a certain interest rate and a certain number of payments, surely it is possible to work out the total to be paid at the end. When I did simple interest and compound interest at school, it was possible to work out how much a loan would cost overall—[Interruption.] I happily bow to the superior mathematical geniuses in the Room.

John Battle: I am grateful, but I would not like to stand up as a superior mathematical genius. I simply want to speak about the experience of people in my neighbourhood. The problem is not so much the adverts on TV, but the people who knock on doors. If a person has £4.99, he or she can borrow £150 to buy a bed, but will end up paying back nearly £400. The problem is not only the interest, though. If a person cannot afford the weekly payment on a Friday because they have paid another bill, they miss a week's payment and there are extra charges for that. Often, rather than the interest rate, it is the compound interest on those charges that is the problem, and that fact is not recognised. As I said, the problem is caused not so much by the television adverts, but by the people who knock on doors, and by the collection process. The Bill might do something to tackle that. The hon. Lady mentioned interest rates, but that is only half the cost.  The darker side is buried in the charges that add to the compound interest and cause the situation that the hon. Lady outlined.

Jenny Tonge: The right hon. Gentleman is right, and it is that issue that I am so concerned about. It is not pointed out to people that if they default next Friday because they cannot pay their contribution, those charges will make their debt much bigger than they ever imagined. That should be pointed out, and it is very sharp practice if it is not. People must also be made aware of the alternatives. Many young people and students think that credit cards are the ideal way to borrow money. They do not shop around to find out the differences in credit card interest rates. There has been a huge debate in the press and in Parliament over recent weeks about the fact that those can vary hugely.
People are simply not aware of the facts. When people take out such loans or become overdrawn on their credit cards in that way, it should be made clear to them just what they are letting themselves in for. People should not be seduced into taking a loan that they are never going to be able to pay back. Is it not reasonable for a company to say that there may be other options? If someone wishes to take out a loan on a credit card, is it not the duty of that company to say that it might be better if they took out a bank loan or sought advice from a financial adviser or their bank? We give far too much leeway to companies to push what the debtor will see as cheap money, which turns out to be very expensive money and sometimes totally ruinous. 
I have constituents who find themselves with huge, unexpected repayments to make, simply because it was never explained to them in the first place. I may be accused of being too kind and too lenient, but although we may—I hope—learn a certain amount at school, sometimes we do not pay enough attention to practical teaching on the practical problems that people may encounter in their lives, such as interest and compound interest. A few lessons on credit cards, banks and how credit companies and money lenders operate might be far better than learning about isosceles triangles. Perhaps we also need to address the education system. 
I move the amendment in the interest of giving consumers much more information before they take out loans.

Laurence Robertson: I sympathise with the spirit in which the hon. Member for Richmond Park moved the amendment, but I see possible problems with the drafting. I entirely agree with the point that very busy and vulnerable people may fall foul of the agreements, but it can happen to those who do not fall into either category but who simply do not understand the legal technicalities of a contract. That is what we are talking about. People study contract law at university for many years, then may take articles and study for several more. They then become solicitors, but even  they sometimes do not understand the intricacies of contract law, so it is a little much to expect anyone else to understand it fully.
There is, of course, the legal philosophy of caveat emptor—let the buyer beware. Ordinarily, in a free society, that is quite reasonable, but when we come to very complicated contracts, the relative strength of the parties is very different. I have many concerns not only about the way in which agreements are set up, but the way in which they are run. If I interpret it correctly, one of the reasons for the Government's introducing the Bill, apart from addressing how contracts are set up—I wish to turn to that important matter during the debate on amendment No. 16—is to deal with the way in which they are run. I certainly do not want extra burdens to be placed on businesses, which are, by and large, honourable and successful. I am part of the shadow Industry team, and we are attempting to devise deregulation in order to make businesses more competitive. There is far too much red tape in Europe and in Britain, and we wish to get rid of much of it, but we do not wish to do so to such an extent that it will create unnecessary problems. It is important that we do not lose sight of the fact that people are getting themselves into terrible amounts of debt in this country. We have record debt of more than £1 trillion. It is so large a figure, I am not sure that I understand how much it is.

Gerry Sutcliffe: Will the hon. Gentleman give way?

Laurence Robertson: The Minister is about to intervene. I hope that he will tell us how many zeroes there are in a trillion.

Gerry Sutcliffe: I shall not do that although I am grateful to the hon. Gentleman for giving way. I remind him that 80 per cent. of that £1 trillion of debt is composed of mortgage repayments, which, in the long term, will make people asset rich. I am sure that the hon. Gentleman will acknowledge that.

Laurence Robertson: I am grateful to the Minister for that very helpful intervention—I did not know that figure. Obviously, we support entirely people who buy their own houses. I remind the Minister that we introduced the ability to do so in many cases, so I entirely support that. I am glad to see that this week, the Prime Minister is adopting our policy.

Gregory Barker: May I point out to my hon. Friend that the Minister may be right to say that 80 per cent. of that figure is mortgage debt, but that is not all vanilla, sensible, saving and the buying of houses? A significant number of new mortgages these days are taken out by people who must consolidate high debts that they have accumulated on credit cards, store cards, or personal loans. Their only way out is to get a larger consolidation loan that is secured against their home. As we are always told, their homes are at risk if they do not keep up with repayments. Debt accumulated for a purpose other than for the purchase of a home is a very different matter.

Laurence Robertson: I am grateful to my hon. Friend for that telling intervention. It is absolutely true, and it is a modern phenomenon, that when people take out a mortgage—let us say for £100,000—they may get a capped rate for five years, but at the end of those five years, they rarely take out a mortgage for £100,000 again; it will be for £110,000, £120,000 or £130,000. Nevertheless, the Minister has a point. However, I do not think that the Minister was suggesting that there is no problem with the level of debt in this country.
I accept that incomes increase on an ongoing basis, and I accept that assets may also have increased. However, we cannot deny that many people get themselves into debt unnecessarily, and the problem is not just the amount that they borrow. The right hon. Member for Leeds, West made the point that the problem is the way in which agreements are run. They work on the basis of compound interest, which I could never understand at school. I could never work out compound interest, even though I passed my maths O-level, let alone remember what an isosceles triangle was. It is important that we teach people more about compound interest than isosceles triangles.

John Battle: On a small point—and, in a sense, a trivial one—without isosceles triangles, our shelves would fall off the walls, so we must understand both compound interest and the practical problems of putting up shelving. Compound interest is important, but so is the matter of charges. Interest is incredibly difficult to work out, and calculating simple or compound interest is tricky when one is simply told that repayments will be £4.99 a week. However, break clauses are not always spelled out to the borrower, and those can build up as charges that bury people in debt much more than interest. I am campaigning for a cap in interest rates. However, if they were capped at 30 per cent.—that is an argument that I shall have with the Minister—the problem would not be solved because charges are even worse than interest rates, but we are not legislating for those.

Laurence Robertson: I am grateful to the hon. Gentleman, and we can probably return to those points when we debate amendment No. 17. He is right, and I am glad of his explanation of the isosceles triangle; I shall look for them the next time that I go into my local store.
I am unable to support amendment No. 30 because of the way in which it is worded. There are problems with subsection (e),which states that a lender 
''shall be obliged to give free and impartial advice to the debtor as to alternative products''. 
I am not sure that that would be legal under the Financial Services and Markets Act 2000, although the Minister will know more about that than I do. I think that it is correct to say that people are entitled to give advice only on the products that they are licensed to sell. However, I agree with the spirit of amendment No. 30, and I have tried to clarify the matter a little with amendment No. 16. 
The Minister reacted slightly strongly to an earlier point that I made. Although I was not criticising the Bill. many people are concerned that it is vague in  many ways and that it gives a lot of regulatory power to the Minister. I do not doubt that consumer credit will be regulated very well while the Minister is in office, but he may well not be in office after 5 May. Even if the unthinkable happened and the Labour Government were re-elected, he might not continue to be responsible for this matter. I am a little concerned about how much extra power the Bill will give to Ministers. In amendment No. 16, I have not tried to strike out what is already in the Bill, but I added that the statement 
''shall include . . . the amount paid by the debtor to the lender to date; . . . the amount remaining to be paid by the debtor to the lender; and . . . the remaining term of the agreement.'' 
Those are very simple requirements. Like the hon. Member for Richmond Park, I do not see a problem in clarifying that part of the Bill.

Gerry Sutcliffe: I wondered when we would get to the politics of the Bill, and it took us until clause 6. If you will forgive me, Sir John, I shall reply, I hope in proper order, to some of the points that were made, and you may make a ruling if I go wide of the mark.
We must set the context of the Bill, of which I am protective because it goes a long way in developing relationships in consumer credit. It is a long time since the Consumer Credit Act 1974 was enacted. Credit can be good; this morning we discussed the pitfalls of debt that result from improper lending and improper use of credit. However, on the whole, credit can be a useful tool for consumers. The diversity and complexity of the UK consumer credit market is important because people can gain access to products from which they benefit. 
The Bill is concerned with responsible lending and borrowing. The hon. Member for Bexhill and Battle mentioned mortgages, and I said that 80 per cent. of the £1 trillion pound debt applied to those. It is true that the majority of other loans are taken out to improve people's asset base, by buying something that will improve the value of their house, or by buying a car, for example. Confidence in borrowing is to do with current strong economic conditions.

Gregory Barker: The Minister said that buying a car would improve people's asset base, but a car depreciates from the moment that it is bought, so how would buying a car improve a person's asset base, particularly when a loan increases from the moment that it is taken out?

Gerry Sutcliffe: A car can help people in general terms. For instance, it can help them get to work. I accept the point about depreciation, but if people are economically able to buy a car, their personal situations can be developed as a result. We can have a greater debate about cars and issues that relate to motor vehicles if hon. Members want.

John Butterfill: Order.

Gerry Sutcliffe: Perhaps that does go outside the context of the Bill, Sir John.
The UK's strong economic position, with low interest rates, low inflation and more people in work than ever before, increases confidence. Economic  education goes to the heart of the problem, and the hon. Member for Richmond Park said that people should be taught from a very early age how to deal with money. I agree. I am having discussions with my hon. and right hon. Friends in the Department for Education and Skills about supporting the many programmes that are underpinned by industry and consumer groups in the field of financial capability. The Financial Services Authority is undertaking a national strategy consultation, and a great deal of work is being done on this area up and down the country, particularly with young people because the pressures of consumer issues affect them. 
I agree that we must ensure that people understand how money is used, and I was pleased to see that in the pre-Budget report the Chancellor introduced £120 million for a financial inclusion fund. I am sure that that will benefit many people, and my Department is currently considering proposals for giving money and debt advice and for how best to educate consumers. 
I am sure that it will come as no surprise to hon. Members that the Government want to resist both amendments. Amendment No. 30 does not, in our view, appear to be directly related to the requirement to provide annual statements to debtors who have fixed sum credit accounts. The requirement for an agreement to state the amount that has been borrowed and the total interest payable is already dealt with by the Consumer Credit Regulations 1983, which was made under section 60 of the 1974 Act. The second and third subsections in the amendment appears to have raised issues that are more significant than the provision of information about accounts. Indeed, both subsections seem to suggest the imposition on lenders of an obligation to advise consumers about how best to borrow. 
The Government's position is that there must be a balance between responsible lending and responsible borrowing. A consumer should have all the information that he needs to make an informed decision, and that is one reason why the Government recently implemented new consumer credit regulations on agreements and advertising. It would be a very different matter, however, to require lenders to tell consumers how they should borrow, and the Government shall resist any such proposal. Consumers should be informed and empowered, but that does not mean that lenders ought to act as their financial advisers as well, which would place them in the same position as lawyers, accountants and financial advisers, with all the duties that such roles entail. 
The Government will resist the amendment, but we will consider with all interested parties the form and content of annual statements and ensure that they reflect the balance between the need to inform and practical reality. Statements must also be able to change to account for development of the consumer credit market in the future. 
The Government are committed to consulting with the industry and consumer groups to ensure that there is a balance between the provision of information and the practicalities involved, so we will resist amendment No. 16. We will consult with all interested parties on the content of the statements and ensure that they reflect a balance between the need to inform and the practical reality. 
The hon. Member for Tewkesbury raised the issue of the imposition of obligation on lenders not being too onerous. In introducing the provision the Government recognise two things: many responsible lenders already provide regular detailed information to consumers, and this requirement is designed to ensure that lenders meet a minimum standard of information provision to consumers. All consumers who have agreements of more than a year's duration should, and are entitled to, receive the same minimum information on a regular basis. 
The Government's intention is not to impose onerous compliance requirements on lenders; we want to ensure that all lenders provide consumers with a minimum level of information, and we want annual statements to contain relevant and useful information. The Department will consult widely with industry and consumer groups before preparing regulations specifying the form and content of annual statements. For those reasons, I ask the hon. Member for Richmond Park to withdraw the amendment, and, if she fails to do so, I ask the Committee to vote against it.

Jenny Tonge: I thank the Minister for his explanation, and as with the previous amendment, I do not feel confident enough to put it to the vote, so I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.

Laurence Robertson: I beg to move amendment No. 17, in clause 6, page 5, line 37, at end insert—
 '(7A) In addition to the statement referred to in subsection (1) above the lender shall also provide the debtor with a statement at the outset of the agreement. 
 (7B) Regulations may make provisions about the form and content of the statements under (7A), but the contents shall include a clear guide as to— 
(a) the redress procedures available to the debtor if any dispute regarding the agreement shall arise, with particular respect to the Financial Services Ombudsman and the Financial Services Authority;
(b) sources of information and advice with regard to the debtor's rights under the terms of this Act and the 1974 Act; and 
(c) any charges, other than interest payments, which the lender may legitimately make.'. 
The amendment places a requirement on the lender to provide the debtor with a statement at the outset of the agreement. That is frequently done, but this would be a little more prescriptive. It allows the Minister to set regulations about the form and content of the statement but it also specifies what should be in that statement, including among other things the redress procedures available to the debtor should any dispute regarding the agreement arise. I refer particularly to the financial services ombudsman, who will be discussed later in the Bill, and the Financial Services Authority. 
The amendment also requires them to be told of sources of information and advice with regard to the debtor's rights under the terms of this Bill and the 1974 Act. It also requires—this is probably the most important part—that 
''any charges, other than interest payments, which the lender may legitimately make'' 
must be put on this statement, which must be given to debtors at the beginning of the contract. 
I was persuaded to table this amendment because financial institutions all too often seem to make the rules up as they go along. Charges are levied that I am sure are not necessarily part of the contract. What particularly annoys people is that organisations write to individuals and then, as I said, charge them £30 or £40 for the privilege of having been written to. Some years ago I had a loan, towards the end of which I had a dispute with the company. I had to instruct a solicitor to sort it out. I was successful in doing so—I was right, and they were wrong—but they insisted on writing to me and charging me £30 for every letter they sent. I wrote back saying: ''That is very good, I charge £50 for every letter I send you, so you owe me £x.'' 
Not everyone would have my nerve or confidence, and vulnerable people certainly would not. They would lose out, perhaps in a legal sense, but also simply because of the relative strength of the parties involved, as I described earlier. Therefore, for the agreement to be legal, and this would be consistent with every other area of law in the country, the lender should have to state very clearly not only the terms of the agreement but what will happen if x, y or z happens. The debtor would then have a much clearer idea about the agreement into which he is entering, and much bad faith and bad feeling would be avoided. 
The redress procedures available are important, and it would benefit consumers to be aware of them. I do not see why it should be against the interests of decent and honourable lenders to have to give information and sources of information that relate to the debtor's right under the terms of the Bill and the 1974 Act. I raised a point about such agreements on Second Reading, which requires clarification. I shall attempt to put it more articulately than I did then. If an advertisement or contract carries a term or attractive inducement in large writing, but the complete opposite  appears in tiny writing, it is my understanding of the law that that tiny writing does not supersede what appears in large writing. In other words, if something in an advertisement or an agreement could be said to be misleading, that agreement is struck out. Most people, however, are not aware of that, and would assume that if something was buried in minute writing on page 25 of a contact, a company has a right to rely on that when, in fact, it cannot. 
I shall give one example of why people must be made more aware of their rights and their rights of redress. It returns to what the hon. Member for Richmond Park said about education. I accept that it is impossible to teach 14, 15 or 16-year-olds the intricacies of contract law. However, in general terms, we could do more. Amendment No. 17 seeks to do that by putting the agreement on a legal basis whereby companies can charge if those charges were agreed to at the outset of the contract, but they cannot impose charges simply because they are the much stronger party and because they can persuade people that they are entitled to do so when, in fact, they may not be able to do so.

Gerry Sutcliffe: I again acknowledge the intention and the spirit with which the hon. Gentleman has introduced the amendment. However, I want to convince him that it is unnecessary because wide provisions exist outside the Bill. We have the balance about right on what information must be provided to consumers and on the practicalities of providing that information.
I am not sure how a statement at the outset of the agreement would help consumers, particularly as they would just have received their contractual documentation and might not have made any repayments. The information contained in a statement at that time would not add any value. 
I understand the hon. Gentleman's desire to inform consumers about their options for redress; it is important that consumers receive information when it can be of use to them. The Bill will require creditors to provide information about advice options and alternative dispute resolution, along with arrears and default statements. The annual statements will also include more general information. We want not to overburden consumers with information but to provide them with information that is relevant and helpful. 
In respect of the third item on the hon. Gentleman's list, the Government have recently amended regulations relating to pre-contractual information. The Consumer Credit (Agreements) (Amendment) Regulations 2004 also require lenders to specify in agreements any charge that may be imposed on default.

John Battle: On that point, I have a great deal of sympathy with the hon. Gentleman's amendment. The reason is that the interest is often in the small print. It may be written in Carolingian miniscule, so that one can hardly see it if one has bad eyesight. Apart from that, when charges are put on, not all of them have been agreed and are clear at the beginning. The  problem is that companies change the terms of the contract half way through. We must get to grips with that; we must put pressure on companies. I suspect that companies make enormous amounts of money out of the poor, who pay the most. Companies know how much profit they will make before the end of the year; they anticipate what they will pick up in interest and in charges. Will the Minister reassure me that we can either give more support to borrowers or put more pressure on companies to be more open about what money they expect to get from people?

Gerry Sutcliffe: I fully agree with my right hon. Friend's intentions. We changed the rules on newspaper advertising to make the cost of a product clear in bold print. We worked with the industry on the form and content of an agreement to decide on measures that were to everyone's benefit. The driving factor is transparency. If I use the term ''rogue'' I do so not to attack those who lend, the majority of whom do so responsibly.
There will be an unfairness test, which we shall discuss later. There will be an alternative dispute resolution and there will be other redress and safety mechanisms to point out those who act improperly. I do not think that the amendment will take us much further. I think we have the balance right on the information required for consumers' benefit and so that lenders will not be unduly burdened.

Paul Farrelly: I, too, have some sympathy with the gist of the amendment and with the Minister's argument against overburdening people with information. However, as the Minister and my right hon. Friend the Member for Leeds, West pointed out, it is not merely a question of information, but of enforcement. Many big, reputable credit card companies routinely make high and changing charges, which have been held in certain forums to be unenforceable penalty notices. However, they still implement them.
I hope that, on the enforcer of this legislation, the Office of Fair Trading, we shall see a step change in the enforcer's regime. The practices I have referred to are well known and they could be covered by blanket enforcement, but that is simply not done at the moment.

Gerry Sutcliffe: I have great sympathy with my hon. Friend's remarks. From those who watch and listen to our deliberations there is a clear message to politicians on all sides on the need for openness, transparency and responsible lending. The onus is on those who have the maximum resources to ensure that their products are transparent and do not hinder consumers. The other side of the balance is that consumers borrow responsibly by having as much access as possible to information about products.
The small print is always a difficult issue. The new agreement regulations that will take effect in May will require changes to be specified clearly and concisely,  and not in small print. If that does not happen, they will come under the redress mechanisms that we shall discuss later. 
I understand the spirit and the intention behind the amendment, but I do not think it is necessary. We have the balance about right, and we shall have further opportunities to offer redress where necessary. I therefore ask the hon. Member for Tewkesbury to withdraw his amendment.

Laurence Robertson: May I pick up on the Minister's point that the provision would be too late once the agreement had been set up? I do not see it that way. The amendment calls for a statement at the outset of the agreement; by implication, that is when the agreement is made. I understand that there is a two-week cooling-off period for agreements. Those two weeks could be used to read the statement to see whether, in the cold light of day, the debtor actually agreed to what was written down and that it was, in fact, what he intended to agree to.
The problem is that the system is not working. People are getting into terrible debt and some companies—I stress that it is only some—are changing the terms of agreements as they go along. It may or may not be legal to do that, and I suspect that it probably is not, but it is still happening and we must address it. I intend to do that with the amendment. Amendments Nos. 18, 19 and 21, which are the next group, also deal with the way agreements should be run in respect of default payments, and we will come to that. 
The Bill should address the relative strength of the parties, and, in spite of the Minister's eloquence and detailed information, I must insist on this amendment. 
Question put, That the amendment be made:—
The Committee divided: Ayes 4, Noes 9.

Question accordingly negatived. 
Question proposed, That the clause stand part of the Bill.

Gerry Sutcliffe: Although we have given some time to the amendments and have had a full debate, it is important to put on record the Government's position on clause 6.
Consumers are entitled to be informed about their credit situation. The clause ensures that debtors receive clear and concise information about their fixed sum credit agreements on a regular basis. Clause 6 inserts a new section 77A into the Act. It will require  creditors to provide debtors with annual statements in respect of fixed sum credit agreements that have a duration of more than one year. A fixed sum credit agreement provides a facility to a debtor who is entitled to receive a credit, whether in one amount or by instalments. Subsection (1) states that a creditor must provide a debtor with annual statements. The first statement must be provided within one year after the day on which the agreement was made. Subsequent statements must be provided at intervals of no more than one year after the previous statement was issued. 
The form and content of annual statements will be specified by the Secretary of State in regulations which will be made under the new subsection (2). New subsection (3) states that a creditor cannot impose a charge on the debtor of costs of producing an annual statement. New subsection (4) states that the creditor is not obliged to provide any statements after the debtor has made his final payment. Subsections (5) and (6) state that while a creditor does not give the debtor an annual statement when required, the creditor is not entitled to enforce the agreement until a statement has been provided. The creditor cannot charge interest during the time when no statement has been provided, and the debtor is not liable to pay any default sum that would have been payable during the period when the statement should have been provided. The default sum is defined by clause 18 and includes sums, except interest, that will become payable by the debtor in connection with a breach of the agreement. 
New subsection (7) defines ''the period of non-compliance''. That is the period from the day after the last day on which a statement is required until the day when a creditor provides a statement. New subsection (8) makes it clear that the requirement for annual statements does not apply to non-commercial agreements. Non-commercial agreements are agreements that are not made by the creditor in the course of his business or for small agreements of less than £50. Debtors should be regularly informed of their financial situation. This clause ensures that they are. 
Question put and agreed to. 
Clause 6 ordered to stand part of the Bill.

Clause 7 - Further provisions relating to statements

Question proposed, That the clause stand part of the Bill.

Gerry Sutcliffe: Hon. Members will be aware of recent concerns that some consumers make only the minimum payment on their credit cards. Clause 7 ensures that debtors are made aware of the potential hazards of such behaviour. Section 78(4) of the 1974 Act requires creditors to provide periodic statements in the prescribed form. Those should be given automatically to debtors and describe the state of their  running account credit agreements, such as credit cards and store cards. The maximum limit for those periodic statements is currently 12 months.
Clause 7(1) allows the Secretary of State to make regulations requiring additional information to be included in those statements given to debtors—for example, that additional information will set out the consequences of making only part payment, failing to make any payments, or making only minimum repayments. The Department will consult about the form of those warnings with interested stakeholders before the Secretary of State makes any regulation. 
Subsection (2) ensures that changes do not apply to small agreements for less than £50. Subsection (3) amends section 185(2) of the 1974 Act where the agreement is with more than one debtor. Anything required by the Act must be done to all debtors, but one of the debtors can sign a dispensing notice authorising the creditor not to comply with the obligation on his behalf for a fixed sum annual statement. That avoids the need to send duplicate statements, and the notice is effective only if at least one of the debtors is still receiving statements. 
Question put and agreed to. 
Clause 7 ordered to stand part of the Bill.

Clause 8 - OFT to prepare information sheets on arrears and default

Laurence Robertson: I beg to move amendment No. 18, in clause 8, page 6, line 35, at end insert
', but shall include— 
(a) details of the rights of consumers under this Act and the 1974 Act with regard to defaults; and 
(b) details of redress procedures available to debtors, with particular respect to the Financial Services Ombudsman and the Financial Services Authority.'.

John Butterfill: With this it will be convenient to discuss the following amendments:
No. 19, in clause 9, page 8, line 2, at end insert 
', but shall include— 
(a) details of the rights of consumers under this Act and the 1974 Act with regard to arrears; and 
(b) details of redress procedures available to debtors, with particular respect to the Financial Services Ombudsman and the Financial Services Authority.'. 
No. 21, in clause 10, page 8, line 37, at end insert 
', but shall include— 
(a) details of the rights of consumers under this Act and the 1974 Act with regard to arrears; 
(b) details of redress procedures available to debtors, with particular respect to the Financial Services Ombudsman and the Financial Services Authority.'.

Laurence Robertson: The amendments follow on from amendment No. 17 and address the same problem. Amendment No.18 asks that the rights of redress procedures available to debtors be clearly laid out and that the rights of consumers under this Bill and the 1974 Act with regard to defaults be carried out. It seeks to reinforce the point that the company should be allowed only to do what it originally stated it would do. It should be set out very clearly to debtors what their position is under this Bill and under the 1974 Act,  what their rights of redress are, and what they are legally liable to pay. I spoke comprehensively on those matters in the discussion of amendment No. 17, so I shall allow the Minister to put forward his line of thinking.

Gerry Sutcliffe: By now it should come as no surprise to the hon. Member for Tewkesbury that we shall be resisting his amendments. That is not a personal attack on him, rather on the content of the amendments.
The requirement for the Office of Fair Trading to prepare and publish information sheets on arrears and default will be supported by regulation to be made by the Secretary of State. Those regulations will specify the types of information to be included, and the form of the sheets will be left to the OFT. The Government have left those decisions to be made in regulations to enable the OFT to decide the detail and to make further changes as and when necessary. It also enables the Government to develop that detail through consultation with consumers and the industry, and it ensures future-proofing. The matters mentioned in the amendments are able to be required in those statements. We are committed to consulting the industry and consumer groups on that detail and to ensuring that there is a balance between the types of information specified and the practical limitations of preparing useful information sheets. We will, therefore, resist the amendment. We will consult all interested parties on the types of information to be included in the OFT information sheets and ensure that they reflect a balance between the need to inform and the practicalities. 
We resist amendment No. 19. The requirement for notices of sums in arrears in relation to fixed sum credit agreements is to be supported by regulations to be made by the Secretary of State. As I have said, the regulations will contain the content of the notices and their forms. Those matters are best left to regulations, which ensure detailed provisions for the form and content of the notices and which can be changed if necessary. 
As I said in relation to the previous amendment, the Government will be able to consult with consumers and industry. The important point is that since the White Paper, and since the regulations that flowed from it came into force, the journey we have made is one that we have tried to undertake with stakeholders who represent all sides. That is beneficial, and we have set out the most appropriate way forward. We will consult further, and the issues raised by the hon. Member for Tewkesbury and the assurances for which he asked can be dealt with through those regulations. That is a better route. 
On amendment No. 21, if we leave matters to regulation, we will move forward on important issues. The hon. Gentleman mentioned advice and redress options. Those will be required in the notices and are to be provided as part of the Office of Fair Trading  information sheets, which will be required to be provided with a notice of sums in arrears and default notices. We will consult all interested parties. The notices need to be able to be changed to take account of future developments in the consumer credit market. That will not add the burden of excess paperwork to consumers or lenders, and it is appropriate to follow our suggested route. To follow the hon. Gentleman's route would create further burdens and would not be in the spirit of what we are trying to achieve. We ask him to withdraw his amendment.

Laurence Robertson: Let me pick up on the Minister's closing comments. The amendments would not put a further burden on the industry. They are simple requirements. The details of the rights of consumers under the Bill and under the 1974 Act would be set out in a standard document. It would not place any extra burdens on businesses. I note that the Minister will consult with the industry yet again. I wish him well in those consultations, and on the strength of that, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn. 
Question proposed, That the clause stand part of the Bill.

Gerry Sutcliffe: To remove any doubts that the Committee may have, I will set out the Government's position on clause 8. The Government are committed to ensuring that all consumers receive clear, concise, independent information on debt management options, including debt advice. The best times to do that are when telling consumers about being in arrears and when they receive the court notice.
Clause 8 requires the Office of Fair Trading to prepare and publish information sheets to be included with notices about arrears and default notices. The sheets will be published by means of a general notice. The arrears information sheet will include information to help debtors and hirers who receive arrears notices under clauses 9 and 10. The default information sheet will include information to help debtors and hirers who receive default notices under the 1974 Act. The type of information included on each sheet will be, as I outlined in the discussion on the amendments, specified in regulations made by the Secretary of State. It is important that the Department consults with interested parties before any regulations are made in order to give creditors and owners time to obtain the new information sheets. 
New subsection (5) states that a new information sheet will take effect three months after it is published by the Office of Fair Trading in a general notice. New subsections (6) and (7) state that the OFT may revise the information sheets, and a revised information sheet will take effect three months after the OFT has published it in a general notice. 
Question put and agreed to. 
Clause 8 ordered to stand part of the Bill.

Clause 9 - Notice of sums in arrears under fixed-sum credit agreements etc.

Laurence Robertson: I beg to move amendment No. 20, in clause 9, page 8, line 6, leave out 'four' and insert 'six'.
The amendment relates to the notice of sums in arrears on fixed sum credit agreements. By and large, I support the requirements of clause 9. My only slight problem, which I have discussed with the industry, relates to subsection (8), which refers to weekly payments. Normally payments are made monthly, but there are occasions, particularly among lower income groups, where repayments are made weekly. My simple amendment seeks to address that. 
The current requirement is that if two payments are missed, notices must be sent. That is to be increased to four payments, but four payments may not cover a tremendously long time. Several very small loan agreements may be repaid at the rate of £5 a week or so, and I am persuaded that the industry that operates in that market is often flexible. Money is collected on the doorstep; it is not sent by direct debit. A relationship can build up between the collector and the debtor, and it may be seen as heavy-handed if notices of missed payments and suggestions to seek advice on debt are sent too quickly, when arrears are only approximately £20. I want to do my bit to improve the Bill in that respect, by preventing it from being too heavy-handed in those circumstances.

Sally Keeble: I wonder whether the hon. Gentleman will address this point. His comments seem to run counter to his previous points that all the received wisdom is that early intervention and early reminders are best. I do not understand why, having argued very much in favour of the borrower, he now argues in favour of the lender and against received wisdom.

Laurence Robertson: The hon. Lady makes a fair point, but I am concerned. The industry itself is pressing for eight weeks, but I have suggested six, which I think is a reasonable compromise. As I have said, I am arguing for two points of view. I am arguing for the protection of the borrower, but also that we should not have too much administration, bureaucracy and regulation heaped on top of what is a successful credit industry. The mischief that the Bill seeks to deal with does not exist too much in the small loans sector. That is why I have compromised by suggesting six weeks rather than eight. It would be a little heavy-handed for somebody who is perhaps only £20 behind in payment under the terms of their agreement to start to receive letters that suggest taking debt advice and counselling on debt. It is too heavy-handed; I cannot put it any clearer than that.
I wish to pick up on another point. I am straying slightly from my amendment, so you can rule me out of order, Sir John, if I stray too far. In subsection (9)(b), reference is made to a ''small agreement''. It is my understanding that a small agreement is now £50,  which is a very low sum indeed. Has the Minister any intention to increase that? I am straying way beyond the thrust of the amendment, so I will stop there.

John Butterfill: It would be perfectly in order to raise that matter in the clause stand part debate.

Laurence Robertson: Thank you, Sir John.

Gerry Sutcliffe: I have a slight problem understanding the way in which the hon. Gentleman has moved the amendment, for the reasons that my hon. Friend the Member for Northampton, North (Ms Keeble) has put forward. The Opposition parties have so far consistently supported the position of the borrowers, but I accept that the hon. Gentleman wants to look at matters in the round.
We have looked at this matter in great detail. People taking smaller loans are especially in peril, because they tend to be the most vulnerable. Hon. Friends in other arenas have stated that those who borrow the least can end up paying the most and can be in the most vulnerable of situations. I cannot therefore agree with the hon. Gentleman's amendment; there is just a complete disagreement between us.

Laurence Robertson: I am seeking to protect consumers, but also to avoid unnecessary bureaucracy being piled on top of lenders. The companies that deal with small loans often have a far more flexible approach to business, and while debtors with small loans may end up paying a higher interest rate, the fact that there is flexibility within the agreement can change its nature. However, there may not be the same charges, such as those incurred when writing to people as part of the terms of agreements. That is one reason why I shall resist interest rate ceilings, because the interest rate, as the hon. Member for Leeds, West said, is not the entire story.
I accept that the interest rate may be a little bit higher on those loans, but all I am saying is that the period before the big machine goes into action, writing letters to people, should be six weeks rather than four. That is not a revolutionary proposal.

Gerry Sutcliffe: It may not seem so to the hon. Gentleman, but from the Government's perspective, in our attempt to apply consistency, it is revolutionary. The hon. Gentleman this morning mentioned consistency in regulation and making sure that we did not overburden people. In developing our proposals, we have looked at the issue in great detail, and it has been decided to use a similar approach to that which the Financial Services Authority uses for mortgages, which is a monthly repayments regime.
Although that rationale applies to longer-term mortgages that have monthly repayments, we recognise that small short-term loans are different for the reasons that both the hon. Gentleman and I have given. Simply using the same formula is not appropriate, and for that reason we have made specific  provision for those sorts of agreements. In agreements that will probably be short term with weekly instalments, such as home credit loans, missing four repayments is likely to be a significant issue for consumers who rely on those sorts of products. The proposals in the Bill require notice of sums in arrears to be provided 14 days after the fourth missed repayment. That means that for an agreement with weekly repayments, the creditor will need to send a statement six weeks after the first missed repayment. Such agreements are shorter in duration, only a few months at most, and are for small amounts. We do not intend to change the £50 definition of small amounts. 
The customers that use those products are generally the most vulnerable for the reasons that I have given, and they have limited means. For that reason, we do not believe that the customer should be treated in the same way as in other credit agreements, as the hon. Member for Tewkesbury proposes. Reluctantly, we must disagree on the nature of the issue between us. We believe that, following our deliberations and consultation with the various stakeholders, we have got it right. I ask the hon. Gentleman to withdraw his amendment.

Laurence Robertson: I do not accept that I am proposing that people be treated any differently. Our only point of disagreement is the interval between failing to make a payment and when the letters start to arrive. I do not seek a different rule or a different law. The Government are increasing the period from two weeks to four, so they have recognised that they do not want the whole machinery of bureaucracy to begin too early. All I am saying is that they should have relaxed that bureaucracy slightly more.
The other point about small agreements is relevant. I suppose that if that were a little higher, my amendment would be taken care of, but I shall not stretch the Committee's patience. We have had a bit of a debate on the point, and I do not want to press the amendment to a vote. I am happy to have got on the record my concern about there being a little bit too much bureaucracy, and, that said, I understand the Minister's position. I beg to ask leave to withdraw the amendment. 
Amendment, by leave, withdrawn. 
Clause 9 ordered to stand part of the Bill.

Clause 10 - Notice of sums in arrears underrunning-account credit agreements

Question proposed, That the clause stand part of the Bill.

Gerry Sutcliffe: Let me put on the record the Government's views about the important issues relating to arrears. As hon. Members will appreciate,  getting behind in making regular payments is often the first step towards major debt management problems. The Government believe that consumers should be informed about the situation as soon as possible. Clause 10 will require creditors to provide debtors with a notice when their running-account credit agreement such as a credit card or store card falls into arrears.
The following are the conditions set out when arrears notices must be sent. The debtor under an applicable agreement is required to have made at least two payments under the agreement before that time. The last two payments which he is required to have made before that time have not been made. The creditor has not already been required to give a notice under this section in relation to either of those payments. Finally, if a judgment has been given in relation to the agreement before that time, no sum is payable under the judgment by the debtor. 
If all those conditions are met, new subsection (2) requires that: 
 ''The creditor shall, no later than the end of the period within which he is next required to give a statement under section 78(4) in relation to the agreement, give the debtor a notice under this section.'' 
New subsection (3) requires that: 
 ''The notice shall include a copy of the current arrears information sheet under section 86A.'' 
New subsection (6) states: 
 ''Regulations may make provision about the form and content of notices under this section.'' 
The Department will consult on those matters before the regulations are made. 
New subsection (4) states: 
 ''The notice may be incorporated in a statement or other notice which the creditor gives the debtor in relation to the agreement by virtue of another provision of this Act.'' 
New subsection (5) states: 
 ''The debtor shall have no liability to pay any sum in connection with the preparation or the giving to him of the notice.'' 
The clause is important to ensure that consumers are made aware of the problems with their account as soon as they fall into arrears. 
Question put and agreed to. 
Clause 10 ordered to stand part of the Bill.

Clause 11 - Failure to give notice of sums in arrears

Question proposed, That the clause stand part of the Bill.

Gerry Sutcliffe: I should read out the detail on clause 11, which covers particularly important areas that we should put on the record. The clause sets out the consequences for the creditor or owner offering to give an arrears notice. The Government have carefully considered appropriate sanctions where there has been a failure to provide notices, and the best way to make creditors or owners give arrears notices is to penalise them for non-compliance in a way that hurts them most. 
Subsections (1) and (2) set out the periods in which a creditor or owner will not have complied with the requirement to send an arrears notice. For fixed-term credit agreements that will be either after the 14-day period when the conditions in clause 9(1) have been met or for further notices after the six-month period. For running-account credit agreements, it will be after the time when the next statement was due. The creditor or owner will comply with the relevant requirements when they have sent a notice to the debtor or hirer. 
Subsection (3) and (4) establish the consequences for the creditor or owner during the period when they should have provided an arrears notice to the debtor or hirer. They will not be entitled to enforce the agreement, charge any interest and impose any default sum for a breach by the debtor or hirer that occurs during that period. Clause 11 ensures that creditors or owners cannot profit from an agreement when they have failed to comply with the arrears notice requirements. 
Question put and agreed to. 
Clause 11 ordered to stand part of the Bill.

Clause 12 - Notice of default sums

Laurence Robertson: I beg to move amendment No. 22, in clause 12, page 10, line 23, at end insert—
'(6A) The debtor shall not be required to pay a default sum unless the liability to do so is clearly set out in the statement as required under subsection (7) of section 6 of this Act.'. 
The amendment takes us back to what I was saying about statements setting out exactly what a lender is entitled to charge. It basically refers to debtors who will not be required to pay a default sum unless the liability to do so is clearly set out in the statement. I made the case for the statement under an earlier set of amendments, and there is no need to do so again, but I really do think that that would form a very important part of the original statement, were there to be an original statement— 
It being twenty-five minutes past Eleven o'clock The Chairman adjourned the Committee without Question put, pursuant to the Standing Order. 
Adjourned accordingly till this day at half-past Two o'clock.